As a general swing trading rule, we don’t sit through earnings. There is too much risk for a gap down that could wipe away many hard-fought gains. But FedEx stock gave us a chance to take a quick gain before earnings and avoid that risk.
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Swing Trading Example: FedEx Stock
FedEx (FDX) rejoined SwingTrader on Nov. 23 after getting support at its 10-day moving average (1). This was after finding support and bouncing from its 50-day moving average line.
FedEx stock tends to be a slower mover but we had a 4% gain from our entry the next day and we took some profit (2). Removing a third of the position on the way up makes it easier to withstand normal pullbacks along the way.
That theory was tested as FedEx stock briefly broke below the 10-day moving average before finding support (3). Seeing a strong gain disappear when a stock undercuts your entry is usually untenable. But with some profit booked at a higher price you can still be positive on the trade even if that happens. Waiting until the close also helped. The show of support made it an easy hold by the end of the day.
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The 10-day support quickly led to the stock hitting our 5% profit goal (4). But since we had already taken some profits in FedEx stock, we didn’t need to act. However, the close on this day wasn’t great. Downside reversals usually lead to more weakness. That weakness came temporarily the next day, but again FedEx stock got support at its 10-day moving average line (5).
Closing The Trade
As the stock continued moving higher, we took another third profit once we were up 7.5% from our entry (6). Gains continued the next day but ended with another downside reversal (7). This one was more concerning as it was also an outside day.
Though FedEx stock did end below its 5-day moving average line that day, it wasn’t a decisive close below the line. We gave the stock more room. The next day got worse (8). FedEx stock didn’t get support at its 10-day line this time. And it undercut the lows of the prior few days. We made our final exit with more than 3% profit from our initial entry. Our average of all the exit prices gave us a 4.7% gain for the trade thanks to the early profit taking into strength.
Meanwhile, the 10-day line no longer acted as a line of support. When FedEx attempted to get back above the line it was turned away (9), falling back to our initial entry. Plus FedEx earnings were around the corner. The FedEx earnings report led to a 5% drop at the open Friday. Our quick swing trading gain avoided the risk of earnings and allowed us to move on to other winners.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
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